Crisis averted on U.S. railroads, with carriers and unions reaching tentative agreements

Labor peace has been reached on the nation’s railroads, with United States freight railroad carriers and railroad labor unions coming to terms on a tentative deal early this morning.

Leading up to this development, there had been a high level of uncertainty and anxiety among supply chain stakeholders through multiple modes of freight transportation, with a 12:01 A.M. September 16 deadline marking the end of a 30-day “cooling off” period between the 12 United States-based railroad labor unions and six largest freight railroad carriers (even though the majority of the 12 unions had reached tentative labor agreements prior to the tentative deal being struck).

As previously reported, those agreements followed the announcement of the recent appointment of the Presidential Emergency Board (PEB) by President Biden, which is focused on resolving this ongoing labor dispute. The August 16 release of the PEB’s recommendations, which include a 24% wage increase over the five-year period from 2020 through 2024, coupled with a 14.1% wage increase that is effective immediately, as well as five annual $1,000 lump sum payments, with a portion of the lump sum payments are retroactive and will be paid out promptly upon ratification of the agreements by the unions’ membership, according to the National Carriers Conference Committee (NCCC), an organization representing the nation’s freight railroads in national collective bargaining.

NCCC officials said today that the remaining railroad labor unions that had yet to reach a deal with the railroads— the Brotherhood of Locomotive Engineers and Trainmen (BLET) Division of the International Brotherhood of Teamsters; the International Association of Sheet Metal, Air, Rail and Transportation Workers-Transportation Division (SMART-TD); and the Brotherhood of Railroad Signalmen—collectively represent roughly 60,000 railroad employees. And NCCC added that all of the tentative agreements are subject to ratification by the unions’ memberships.

“The NCCC would like to thank the unions’ leadership teams for their professionalism and efforts during the bargaining process,” said NCCC in a statement. “We also would like to thank the Biden administration – in particular Secretary of Labor Marty Walsh and his team, Secretary of Transportation Pete Buttigieg, Secretary of Agriculture Tom Vilsack, and the board members and staff at the National Mediation Board—for their assistance in reaching these settlements.”

Jeremy Ferguson, President SMART Transportation Division and Dennis Pierce, President Brotherhood of Locomotive Engineers and Trainmen, said in a statement that this tentative agreement includes wage increases, bonuses, with no increases to insurance copays and deductibles.

“For the first time, our unions were able to obtain negotiated contract language exempting time off for certain medical events from carrier attendance policies,” they said. “Our unions will now begin the process of submitting the tentative agreement to a vote by the memberships of both unions.” 

The Wall Street Journal reported that the wages and other contract terms largely followed PEB's recommendations, adding that unions had sought raises of 31% over the five-year term of the contract, while railroads offered 17%, with wage increases amounting to around 13% in the previous five-year contract and annual wage increases in the new contract coming in between 3%-to-7%. 

President Biden described the tentative agreement as a win for both the economy and the American people.

“These rail workers will get better pay, improved working conditions, and peace of mind around their health care costs: all hard-earned,” said Biden. “The agreement is also a victory for railway companies who will be able to retain and recruit more workers for an industry that will continue to be part of the backbone of the American economy for decades to come. I thank the unions and rail companies for negotiating in good faith and reaching a tentative agreement that will keep our critical rail system working and avoid disruption of our economy. [T]his tentative agreement means our economy can avert the significant damage any shutdown would have brought.”

Tensions over the impact of a potential strike had been running high in the days and weeks leading up to this tentative agreement being announced, and U.S.-based Class I freight railroads had already begun making contingency plans in the event a deal did not come to fruition by the end of the cooling off period at 12:01 A.M. on September 16.

Norfolk Southern EVP & Chief Operating Officer Ed Elkins wrote in a September 11 customer service alert that NS was taking steps to ensure it could shut down operations safely if a strike occurred and be positioned to restart quickly when operations resumed, issuing embargoes for certain types of shipments beginning [September 11], which includes rail security-sensitive material (RSSM) and certain time-sensitive shipments.  

CSX said on September 9 that in the possibility of a work stoppage, it would take action by issuing an embargo on all TIH/PIH shipments and other safety-sensitive freight effective Monday, Sept. 12. And Union Pacific said that in the event of a work stoppage, it would immediately activate plans to safely cease all train operations, noting if the work stoppage continued beyond 24 hours, it would issue embargoes for all rail traffic and would lift embargos or issue permits to enable our network to safely resume operations as quickly as possible upon the end of a strike.

The Association of American Railroads (AAR) issued a report late last week, explaining that a nationwide rail service interruption “would dramatically impact economic output and could cost more than $2 billion per day of a shutdown.”

What’s more, it added that if deals were not reached by the deadline, Congress would have needed to step in and act to prevent a service interruption that would harm and impact every rail-served economic sector. Examples of this highlighted in the report include: idling more than 7,000 trains per day; triggering retail product shortages and widespread manufacturing shutdowns; job losses; and disruptions to hundreds of thousands of passenger rail customers.

For historical context, the AAR report cited a 1992 econometric model used by the Federal Railroad Administration, in order to estimate the impact of a national rail shutdown on both employment and economic output. The model found that a two-week shutdown would result in 570,000 rail-served industry layoffs and $14 billion in lost output—or $1 billion per day.

And it added that daily tally would be much higher now, due to inflation, the constant-dollar GDP chain-weighted deflator, which measures economy-wide price changes; and how much supply chains have been streamlined since 1992, with limited excess capacity to move goods and freight. Looking at the impact of a potential rail shutdown on other modes, the report explained that most shippers that use rail could modify their distribution patterns. But that comes with the caveat, it noted, that making a switch on short notice to trucks or barges, or changing production processes to reduce or eliminate the need for rail service, would be very expensive and disruptive, as well as impractical.

Prior to the announcement of a deal being reached, Brooks Bentz, LM contributing editor and supply chain consultant, said the current situation represents complex issues—not just in this current round—for the entire time unions have represented employees, explaining that there is “inevitable tension” between management and labor, with each party having different motivations and goals like reducing costs versus improving earnings and dues.

“The timing for a potential strike is not auspicious,” said Bentz. “The economy is wobbly, inflation is higher than anyone wants, and supply chains will be hard-pressed to sustain themselves without rail service, both carload and intermodal.  Adding to that, a pivotal election on the horizon, so both sides would be well-served to find a way to avoid the disruption this will cause, even if it means more compromise than desired in this round. A strike, if it occurs—and it looks like it will—is likely to be of short duration.  Politically and economically, it would be harmful to many and beneficial to few.  The President would like order the workers back to duty, with a cooling off period of some duration, typically about 90 days. Statesmanship, at any level, is becoming a lost art, but if there ever were a time for it, that time is now, on all sides—labor, management and political.”